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Entrepreneurship Does Not Equal Financing

Posted on Thursday, Oct 16th 2014

I am terribly irritated by the pervasive and continuously fanned misperception that Entrepreneurship equals Financing.

It doesn’t.

Entrepreneurship = Customers + Revenues + Profits.

Financing is optional.

Exit is optional.

The media is reinforcing the myth. Business schools are reinforcing the myth. And hence, they’re setting up entrepreneurs for failure.

Too Early

A business can only become big if it can first get off the ground. The problem with perpetuating the myth is that most entrepreneurs try to raise money immediately and mostly bump around against solid walls.

Today’s reality? Investors fund businesses that have already taken off, not a slide deck or a business plan.

Too Small

Most businesses are just too small for venture capital. Unless you are working on an opportunity that has a billion-dollar total available market (TAM), VCs aren’t interested in your business.

There are, however, many more $5 million, $10 million, $20 million, $50 million business ideas out there. Those are perfectly worth building.

What is wrong with building a $30 million annual revenue business that throws out 30 percent profit every year?

Or a $3 million one, for that matter?

Too Slow

Most businesses simply do not grow at an exponential pace. Most businesses have linear growth curves, not hockey stick growth curves. There is nothing wrong with a $10 million business that grows at 20 percent year-over-year. VCs won’t fund these businesses, but you can bootstrap one with revenues and profits, and that is entrepreneurial success, as far as I am concerned.

Over 99 percent of the businesses out there are not venture fundable because they are either too early, too small, or too slow.

That doesn’t mean they are not viable businesses, and that you cannot be a successful entrepreneur by building one.

You can create value.

You can create wealth.

You can make a difference.

That’s success.

I want to see the following changes in the entrepreneurial eco-system of the world:

1. Entrepreneurs: Please adjust your mindset and define success not as financing or exit, but as building a sustainable business that delivers value to customers. You are being fed a bunch of crap, and you are swallowing it without questioning flawed premises. Stop being idiots!

2. Media: Stop being irresponsible fools. Stop parroting nonsense that propagates and perpetuates a fundamentally harmful myth: Raising venture capital equals success. Give bootstrapping entrepreneurs their due respect, coverage, and platforms to grow. By only covering funding news and funded entrepreneurs, you are making life extremely difficult for those hard-working ones who constitute a much larger portion of the global economy. You are ignoring legitimate businesses that have revenues and profits, in favor of heavily funded speculative ones who often have neither, and many never will.

3. Educators: You think entrepreneurship education entails teaching people how to raise money. Wrong. Please adjust your curriculums. Better, first learn what it takes to get a business off-the-ground. Hint: Not VC money.

By the way, those of you who are turning your nose up and thinking, “Oh, I am too ambitious to do a bootstrapped business” — you also need a colonoscopy of the brain ASAP.

Let me introduce you to my friend Girish Navani, CEO of eClinicalWorks, a leader in the healthcare IT industry. Girish has built a $300 million business without a penny of outside capital. If he were to exit, the valuation would be well above $3 billion. You think he lacks ambition?

And, a couple of more introductions: Greg Gianforte, founder of RightNow and Christian Chabot, founder of Tableau. Both raised gobs of venture capital. Both have built billion-dollar unicorns. Both bootstrapped first, raised money later. At fantastic terms.

They went to VCs as kings, not beggars.

Once more:

Entrepreneurship = Customers + Revenues + Profits.

Financing is optional.

Exit is optional.

Here is a panel discussion at the MIT and the Digital Economy conference in 2013 where David Verrill (executive director of The Center for Digital Business at MIT Sloan School of Management) moderated a discussion between Doug Leone, managing partner at Sequoia Capital, and myself, that debated the issues quite articulately.

Note: If you take external financing from exit-oriented investors, then exit is compulsory. However, there are also investors who use the dividend model, and do not require an exit.

 

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